The Role of Principles in Economics and Politics

|Peter Boettke|

That is the title of Frank Knight's presidental address to the American Economic Association (1951 AER). But as we begin a new school year, it might be wise to revisit the dilemma that the economic educators faces in communicating the basic lessons of the discipline.

Here are two paragraphs worth thinking about:

My embarrassment, not only at standing before this audience, but in all teaching and writing about economic principles, is not new, as its source is not. I have been increasingly moved to wonder whether my job is a job or a racket, whether economists, and particularly economic theorists, may not be in the position that Cicero, citing Cato, ascribed to the augurs of Rome-that they should cover their faces or burst into laughter when they met on the street. Thus, for reasons which I hope to develop, briefly, my interest has of late tended to shift from the problems of economic theory, or what seem to be its proper concerns, to the question of why people so generally, and the learned elite in particular, as they express themselves in various ways, choose nonsense instead of sense and shake the dust from their feet at us. And also, why the theorist is so commonly "in the dog-house" among economists, as classified by academic faculty lists and books and articles in learned journals carrying the word "economic" in their titles.

And I also note that the period of my career as an economist has been marked by a series of "movements"-I will not say fads-in economic writing and teaching, consisting largely of attacks on traditional views of the nature and function of economics, in which the term "orthodoxy" commonly appears as a "cuss-word," an epithet of reproach. The critics, aggressors, have more or less explicitly advocated the abolition of an economics of economic principles and its replacement by almost anything or everything else, other principles if they can be found-psychological, historical, statistical, political, or ethical, or no principles at all but factual description of some sector of social human phenomena called "economic" for reasons not clear to me. I cannot comment in detail on these fashions in thinking. The latest "new economics" and in my opinion rather the worst, for fallacious doctrine and pernicious consequences, is that launched by the late John Maynard (Lord) Keynes, who for a decade succeeded in carrying economic thinking well back to the dark age, but of late this wave of the future has happily been passing.

And finally, consider this frustrating statement about the situation that we economics teachers face:

The serious fact is that the bulk of the really important things that economics has to teach are things that people would see for themselves if they were willing to see. And it is hard to believe in the utility of trying to teach what men refuse to learn or even seriously listen to.

This description of our dilemma is not unique to Knight, Hayek in "The Trend of Economic Thinking" (1933) argued that economists were called upon more often than any other branch of social science to advice on practical matters of public policy only to have their advice dismissed as soon as it is uttered by politicians and policy makers. Mises in Human Action argued that: "It is impossible to understand the history of economic thought if one does not pay attention to the fact that economics as such is a challenge to the conceit of those in power. An economist can never be a favorite of autocrats and demagogues. With them he is always the mischief-maker, and the more they are inwardly convinced that his objections are well founded, the more they hate him." (1949, 67)

As Knight pointed out, the challenge to the teachings of economics has significant impact on the body politic because the denial of economic principles changes politics.

This same period of history has also seen a growing disregard for free economic institutions in public policy-increasing resort to legislative and bureaucratic interference and control, the growth of pressure groups employing both political and "direct" action to get what they want, and with all this the debasement of the state itself, completely in much of the European world, from free forms to ruthless despotism. It is surely legitimate to ask whether there is some connection between the movement of economic thinking and that of political change.

We must be willing to engage in the futile crusade for economic literacy in the general population, to continually refine our understanding of basic economics and to persuade our peers in the discipline that there isn't anything boring about working with the persistent and consistent application of economic principles to understanding the way the world works in all its given diversity. Simple economics is not simpleminded, and clarity of exposition of the principles of economics is to be valued over quickness of mind and cleverness in presentation.

As James Buchanan wrote in an essay on "Economics as a Public Science", teaching is probably the most important job any of us do as economists. The didactic function of economics is to teach students the principles of spontaneous order so that these students can become informed participants in the democratic process. Too much intellectual energy, Buchanan argues, is currently being spent on "stylized puzzles" and not enough on the "repetitive and sometimes boring activity of 'teaching' the long-accepted principles of the science." (see Buchanan CW, XII, p. 49) "Economics, and economists," Buchanan insists, "must make the categorical distinction between science fiction and potentially attainable reality. Failure to do so can produce results both exemplified by and experienced in the human tragedy of this century's failed pursuit of the impossible socialist idyll." (p. 51)

The mission is clear, the stakes are high, economic teachers must renew their commitment each semester to teach and communicate the basic principles of economics. And one last thing, don't become cynical, embrass the challenge and as teachers of a subtle scientific discipline it is vital to remember that the students will remember what is emphasized in the class, so emphasize throughtout the lectures the enduring principles that are embodied in the economic way of thinking.

Comments

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Prof. Boettke,

Great post at a crucial time. I just read this during my first day in my new grad office. The timing was perfect for me.

I would love to see more posts over the next few weeks about teaching principles, because that's exactly what I'm helping with this fall, Principles of Micro. It is something I'm excited for, but would enjoy more advice for you on the process if you have time.

Those who teach economics might benefit from a technique that has proved very useful in professional schools, that of the "decision-forcing case." Not to be confused the lengthy (and often polemic) articles known as "case studies", "decision-forcing cases" are exercises that place students in the role of actual people who, at some time in the past, were faced with a problem. Decision forcing cases begin with the background to the problem, move on to a discussion of student solutions, and end with "the rest of story" (a description of the outcome of the solution.)

I love the meme this represents Peter: The principle problem of economics is teaching the counter intuitive properties of economic reasoning to as many people as possible: a defense against hubris.

We all are victims of the will to power. And economics is the chief modern tool, in the absence of traditional moral rules, by which we assert power in the contemporary polity.

I just think that as nerds we are tempted by platonic nonsense - puzzles - much more than that which corresponds with reality. Puzzles are an incessant attraction, and problems require we interact with and compromise with other people. That's nowhere near as fun as the intellectual equivalent of video games.

Great teacher. If the Cathedral was only populated by more of you..... :)

Suppose an economist, taken at random, from a major American university (not called GMU or any of its associated places)were to take a look at Knight's talk. I think there is a strong likelihood he or she would say: The principles are just a language. Very little substantive came come of them which is not dependent on propositions that are far from certain. Behavioral economics has shown the dubious nature of some of the most basic propositions.

Further, Knight could talk the way he did because most rigorous thinking, at the time, was probably on his side. But now? An economist can give you a "rigorously formulated" presentation of just about any idea.

The Principles textbooks today reflect the history of the discipline -- a body of thought that is just viewed as a heuristic starting point, not certain postulates. In today's world, behavioral economists cast doubt on the importance even of opportunity cost.

In interwar Vienna we had hyperinflation for monetary policy. And for theory, we had Othmar Spann being taken seriously when he said that society is “based on an objective spiritual reality, upon something which must be conceived as an aggregate of a peculiar kind on a higher plane than the individual and therefore super-individual” ("Types of Economic Theory," 1930, p. 59). He was taken seriously when he said that “the mental or spiritual associative tie between individuals exists as an independent entity; that it is super-individual and primary, whereas the individual is derivative and secondary” (Spann 1930 p. 60).

Today, we free-market types may wish for John Taylor over Janet Yellen to head the Fed (if we're going to have a central bank), but Yellen was an early advocate of the Taylor rule within the Fed. Theory may be more ad hoc than we like, giving too much scope for intervention, but we're not hearing about universalism or anything else quite that silly. And when we turn to people's lives, we see less violence and more more freedom over time on all time scales.